How social responsibility, green advocacy improve oil company stock performance

Oil and gas companies that speak out against environmental regulations and sustainability values might want to think twice about whether such actions are actually promoting shareholder value, especially if they are based in “blue states.”

Companies that make frequent corporate responsibility disclosures and high corporate political campaign contributions provide higher shareholder returns, a new study released by scholars from the UC Davis School of Management reveals.

The controversial new findings challenge the widely-held belief that political campaign donations are not effective in improving shareholder value.

The study also compliments previous studies that compliance with clean air legislation by Los Angeles-based actually increased productivity of refining companies, not the other way around.

The studies should give pause to California-based refiners who are vociferously arguing that environmental standards for fuels in the state are hurting their companies. The new UC Davis study is based on analysis of data from a comprehensive sample of companies’ voluntary disclosures about corporate social responsibility from the CSR wire news service.

It takes into account companies’ political interests by assessing company individuals’ contributions to political action committees registered with the Federal Election Commission and statewide voting in presidential elections.

Authors Paul Griffin and Yuan Sun demonstrate in their new paper a reliable association between companies’ CSR disclosure intensity and political interests. The authors work supports the notion that when the political interests of managers and stakeholders noticeably converge it encourages significantly higher voluntary CSR intensity. In particular, the authors demonstrate that the correlations between CSR, political contributions and shareholder value is highest when Democratic individuals work for high CSR disclosing companies that make political contributions and are based in states where the voting favors the Democratic presidential candidate.

These results are the first to suggest that corporate contributions, especially those by Democratic individuals – in tandem with high intensity CSR – associate with economic gains to shareholders. Specifically, the authors found that “a hedge strategy that includes investing in large companies with frequent CSR disclosure and an active Democratic political contributions base produces a significant positive mean excess return of 4.5 percent over three months following CSR disclosure.” The authors suggest that one reason why political interests play a positive role is that it serves the cause of building a sustainable brand.